“Recent indicators point to modest growth of spending and production this quarter,” Powell said in Wednesday’s Federal Open Market Committee’s (FOMC) press conference. “Consumer spending appears to be expanding at a subdued pace, in part reflecting tighter financial conditions over the past year. Activity in the housing sector continues to weaken, largely reflecting higher mortgage rates.”

FOMC officials signaled that it is on track to raise rates again in March to attain its target of taming inflation to a 2% range.

“While the FOMC statement noted that inflation has ‘eased somewhat,’ the unanimous vote of monetary policymakers to raise rates another 25 basis points – and signal that further increases are likely – indicates that markets should anticipate that the Federal Reserve will keep short-term rates higher for longer,” said Mortgage Bankers Association chief economist Mike Fratantoni.

Marty Green, principal at Polunsky Beitel Green, a Texas-based law firm representing mortgage originators, agreed. “Today’s more moderate rate increase is a clear signal to markets that, while the Fed may need to raise rates somewhat higher this year, it is getting closer to its terminal rate in this rate cycle as inflationary pressures continue to ease. Most of our clients are forecasting another 25-basis point increase at the March meeting before the Federal Reserve pauses.”

What this means for mortgage rates in 2023

“This means rates will probably peak at about 5% in March, in the Fed’s efforts to force inflation down through a marked slowdown of the economy,” Fratantoni said.